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Nov 29th 2018

ON DECEMBER 17TH 2017 the price of bitcoin on CoinMarketCap, a cryptocurrency exchange, neared $20,000. True believers hoped that was just the beginning. One analyst at a Danish investment bank predicted bitcoin could be worth $100,000 by the end of 2018. The year is not yet over. But as The Economist went to press, bitcoin’s price was $4,223, and trending downwards (see chart). Where bitcoin goes, other cryptocurrencies follow. Ether, the second-most popular cryptocurrency, is down from $1,432 in January to $120 today.

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All this marks the deflating of the third cryptocurrency bubble (the others were in 2011 and 2013). The trigger is unclear. Explaining the movements of deep, liquid markets is tricky at the best of times. Cryptocurrency markets are neither. One popular theory is that the the supply of brave buyers willing to take a punt has now been exhausted.

Regulatory interest may be another reason. Cryptocurrencies have long been a haven for fraudsters. Now the law has started to pay attention. America’s Department of Justice is probing price manipulation in cryptocurrencies, which is widely believed to be rife.

The Securities and Exchange Commission (SEC), another American regulator, is investigating several initial coin offerings (ICOs). These are a fundraising wheeze that sell crypto-tokens to investors, who hope that their value will rise in future; they have raised $7.3bn so far this year. Some ICOs are outright scams, in which the firms vanish once the tokens have been sold. But even honest ICOs could be illegal. On November 8th the SEC charged the founder of EtherDelta, a cryptocurrency exchange, with running an unregistered securities exchange.

Most fundamentally, bitcoin is still far from its notional goal of becoming a digital alternative to ordinary money. Technical faff, and the volatility that makes it attractive to speculators, means that it is hard to use bitcoin to actually buy things. Morgan Stanley, a bank, found that only three of the 500 biggest online retailers accepted it in 2017, down from five the year before.

Punters will be wondering how much lower the price can go. Nobody knows, but hope springs eternal. Smartereum, a cryptocurrency website, is earnestly discussing whether bitcoin could rebound to $50,000—or even $100,000—before the year is out. Caveat emptor.